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Tuesday
Jul052011

Comments Show Little Consensus on USF Reform Issues

A Comparative Matrix Illustrating Diverse Viewpoints on Key USF Reform Decisions

The Universal Service for America Coalition (“USA Coalition”) summed up the dominant attitude towards the FCC’s proposed Universal Service Fund reform with the statement, “the voluminous record in this proceeding reflects widespread agreement that comprehensive universal service reform is necessary, but no consensus about the appropriate replacement mechanism.” Essentially, every major stakeholder agrees that some type of USF reform is necessary in order to bring America’s telecommunications network into the twenty first century broadband era. However, alternative solutions for reform span the spectrum of possibilities from moderate, gradual changes to rapidly eliminating high-cost support and basically everything in between the extremes. In order to keep track of the vast array of perspectives on USF reform, I have created a comparative matrix to illustrate viewpoints on key issues such as reverse auctions, fund caps, supported broadband speeds, transition periods and preferred alternative plans. The chart below only addresses one half of the overarching USF reforms—Intercarrier Compensation rightfully deserves a comparative matrix of its own.

The challenge in this project was picking the issues to compare across the different stakeholders represented—as a result, this is by no means a complete snapshot of the entire USF reform ecosystem. Issues like eliminating rate-of-return, size of geographic areas for targeted support, how many and what types of broadband providers to include in CAF, and nuanced perspectives regarding the different components of the high-cost fund are all equally important aspects of USF reform.  I believe that the topics represented in this matrix represent the “hot topics,” and are therefore the issues that most stakeholders provided commentary about in the proceeding. I also believe that reverse auctions and fund caps represent the most critical threats to RLECs, so it is especially important to illustrate the diverse opinions from stakeholders on these topics in order to possibly predict how the FCC may respond in final rules.

The data in the comparative matrix was collected from comments and reply comments from 57 USF stakeholders including small RLECs, Tribal telecommunications providers, state utility commissions, large price-cap carriers, consumer associations, capital lenders, state and national rural telecommunications associations, wireless providers and associations, satellite companies, cable companies, and legal and consulting firms. In some cases, the answer was clear as to whether or not a stakeholder supported or opposed a specific area of USF reform, and in some cases it was necessary to draw my own conclusion based on the comments about a specific topic—like whether or not a stakeholder specifically supports the FCC’s NPRM (surprisingly, this was not always clear).

Overall, I believe that there is overwhelming concern about the potential impact of the FCC’s proposals. In their comments, the Telecommunications Association of Maine insists that the FCC must “First, Do No Harm” with FCC reform. Unfortunately, the definition of “harm” varies greatly depending on which stakeholder is complaining about how unfair the current USF system is or how unfair the FCC’s proposals are. I believe it is clear from the comments that reverse auctions are not popular. Furthermore, there is widespread concern that the FCC’s support of reverse auctions is based on shaky theory with no solid foundation for a workable auction mechanism. Another common trend in the comments was large carriers (and basically any non-RLEC stakeholder) accusing RLECs of being wasteful, yet there were no solid, quantitative examples of RLECs abusing or wasting high-cost funds.  However, there were more than a few examples of RLECs utilizing the current USF system effectively and efficiently to deploy broadband in uneconomic rural areas, and there were ample quantitative examples of financial harms that will befall RLECs if the FCC’s proposals are adopted. Opinions on capping the high-cost funds ranged across the board, as did opinions on the appropriate transition period from the current system to the new USF methodology. Preferred transition periods ranged from immediately to over 10 years, and commenters disagreed mightily over capping, reducing, eliminating or increasing specific parts or the whole high-cost fund. Not surprisingly, there was also little consensus about the broadband speeds that should be supported with USF subsidies—as you can see in the chart below, the range is from 200 kbps to 100 Mbps.  

How will the FCC interpret all of these differing viewpoints? The FCC must properly address the concerns demonstrated by stakeholders, and hopefully the FCC will thoroughly consider some of the alternative plans presented in the proceeding. When the NPRM was first released back in February, Chairman Genachowski specifically said that he wanted to see alternative plans from the industry, and I believe the RLEC industry stepped up to this challenge.  A variety of rural stakeholders submitted interesting and attractive alternative plans that would each bring significantly less harm upon the RLEC industry than the FCC’s proposal. One thing is for sure based on the comments in this proceeding—there is basically no way that the entire industry is going to be satisfied with the final rules. The question is; which stakeholders will be harmed the most? I can only hope that it will not be RLECs.

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